Amid improved automation and efficiencies, production rises, but employment doesn’t, or only a little.

By Wolf Richter for WOLF STREET.

Manufacturers in the US were on a roll in May, expanding at the fastest rate since May 2022, after months of acceleration, amid surging orders and exploding input costs and soaring output prices, according to the two Purchasing Managers Indices released today, the S&P Global Manufacturing PMI for the US and the ISM Manufacturing PMI. Though they differ substantially, and don’t always agree, both PMIs grew by the fastest rate since May 2022.

But don’t expect a surge in employment: In the US, manufacturing is about improving automation and efficiencies – more production with less labor. And both PMIs showed that.

The S&P Global Manufacturing PMI for US manufacturers rose to 55.1 in May, the fastest rate of growth since May 2022, and the third month of accelerating growth (above 50 = growth), as production increased at the fastest rate since April 2022, and as orders increased, “largely driven by client efforts to build stock given expectations of further price rises and supply delays.” Supply chains began to struggle, and supplier delivery times deteriorated by the most since August 2022 (chart via Trading Economics).

Prices, oh my! Manufacturers’ input cost inflation exploded in May from April, with the index spiking by the most since July 2022 – driven by “raw material prices, particularly for fuel and oil-related products” (blue line in the chart below).

And prices charged by manufacturers soared in May from April by the most since September 2022 (brown line) “as they sought to pass through their own higher expenses to clients wherever possible” (chart by S&P Global Market Intelligence):

Fears of more inflation and supply chain disruptions have begun to cause frontloading of purchases: “Purchasing activity rose solidly since April and was often linked to higher production requirements and efforts to mitigate against further price increases and supply chain disruption.” And so input stocks rose for the second month in a row – “despite difficulties sourcing and receiving inputs amid supply constraints and shipment delays from vendors,” according to S&P Global.

Employment increased in May from April, and “although the rate of job creation was only modest, it was the best for five months,” the report said. “A positive outlook in part helped encourage additional hiring, with manufacturers generally anticipating an increase in sales and output over the coming 12 months.”

The ISM Manufacturing PMI for May, also released today, expanded for the fifth month in a row. At 54.0%, it was the sharpest growth rate since May 2022, having now emerged from the 2023-2025 doldrums, driven in part by surging new orders.

“Three of four demand indicators (the New Orders, Backlog of Orders, and New Export Orders indexes) were in expansion.” The Customers’ Inventories Index remains in ‘too low’ territory, which is “usually considered positive for future production,” the ISM report said. And Supplier deliveries were slowing for the sixth month in a row.

New orders (56.8%) rose at the second-fastest rate since January 2022, a hair behind only the spike in January. Four of the six largest of the 18 manufacturing industries reported increases, in that order: Computer & Electronic Products; Chemical Products; Transportation Equipment; and Machinery. The New Export Orders Index also rose (50.6%), after a decline in April.

The Production Index rose at an accelerated pace in May from April (54.3%), and in expansion territory for the seventh month in a row. Five of the six largest manufacturing industries reported higher production, in that order: Transportation Equipment; Machinery; Computer & Electronic Products; Food, Beverage & Tobacco Products; and Chemical Products.

The growth of the Backlog of Orders Index accelerated by 0.8 percentage points to 52.2%.

And input prices spiked in May from April (82.1%), but at a slightly slower rate than they’d spiked in April from March (84.6%), which had been the worst since April 2022. 16 of the 18 manufacturing industries reported that prices rose in May from April.

But employment was still in contraction in May from April (48.6%), though at a slower rate than in the month before. Of the 18 industries, half reported growing employment. The rest reported stable or declining employment.

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